Crowdfunding Is Not a Lending Institution


There are two issues that consistently arise in the world of crowdfunding: businesses use crowdfunding as one of their sole sources of capital and backers don’t get what they’re promised. The first issue is more of a business plan problem than a crowdfunding problem because too many people are taking the advice to go “all in” too literally. Any time a single funding source is your sole source of capital, your business is going to be in trouble.

The second issue is a reflection of the fact that most crowdfunding backers aren’t professional business financers. They are joining projects because they have a love for that project. They’re already the ambassadors of the brand, spreading a positive word-of-mouth message to the masses. A funny thing happens to these ambassadors if they don’t get what is promised to them: a positive message suddenly turns negative.

Why Are So Many Businesses Taking Advantage of Their Backers?

When people aren’t given what they are promised, then they’re getting ripped off. There’s no getting around that fact. In the crowdfunding world, this is especially seen in the gaming industry. Backers will jump on board with a project because of the components of the game that are being developed. After a campaign ends, it isn’t uncommon for a business to change or even eliminate the promised components.

It’s done without feedback. Without advice. It’s just done arbitrarily.

If the funding source was a traditional lending institution like a bank, then this attitude would be understandable. There is no equity at stake, no backers with whom to speak, and 100% control of the direction of the business. The trouble is that crowdfunding isn’t a traditional lending source. Even rewards-based campaigns are financed by backers who are looking for a specific end product. A campaign promise is a guarantee.

Doesn’t This Require Business Perfection To Solve?

Absolutely not. What backers want is to be included in the communication loop of decisions. If a game is struggling to develop as anticipated, backers want to know before a decision is made to ax the project. To the backer, even if they’re not accredited or professionals, want feedback.

For the business, it pays to solicit backers for feedback. It’s amazing what a new set of eyes is able to provide to a project, sometimes in just seconds. A fresh perspective can help to get idea development back on track, provide new ideas, or even save a company some cash. What gets in the way of this process is pride.

Businesses today don’t want to admit failure. They would rather promote a fantasy world, like the perfect pictures that people post to Facebook, instead of admitting the truth. When promises are left unfulfilled, then backers will feel betrayed. If you approach backers for advice, there may still be some feelings of betrayal. The difference is that being honest in the approach can help a business recover from a stumble.

Hiding the truth can cause irreparable damage.